Crude oil fell trimming yesterday's gains

By IBT Staff Reporter On 07/29/11 AT 5:07 AM

Crude oil fell today trimming yesterday gains when it rose after the upbeat U.S. fundamentals, which came better than expectations but the debt-limit dilemma overshadowed the good news and brought the market down again as the lawmakers still didn’t reach a solution for the crisis and the deadline is getting closer everyday. Also today Moody’s put the Spainish government bonds rating under review which brought further jitters and concerns in the market.

Light sweet crude oil opened today at $97.20 a barrel recording the intraday high at $97.38 a barrel and a low of $96.88 a barrel and is currently trading around $97.00 a barrel.

Also a strengthening dollar may pressure crude oil further to the downside, as the dollar is still extending yesterday’s gains. The USDIX opened today at 74.06 recording the highest at 74.39 and the lowest at 73.87 and is currently trading around 74.36.

However, concerns over the possibility of a U.S. default or a cut of its AAA credit rating still the dominant fear in the markets and lawmakers have only a few days to raise the debt ceiling before the August 02 deadline. The conflict remains between Democrats and Republicans; Democrats plan to raise the debt limit by $2.7 trillion to cover the country's need of borrowing till November 2012, while Republicans suggested a two-step plan to raise the limit, but the Republicans discovered they lack the needed support to pass the plan which forced the delay to alter the measures in hopes for it to pass to the president.

The vote on John Boehner's proposal was postponed for the second time till today, where Obama and the Democrats already refused the Boehner proposal which will increase immediately the debt ceiling by $900 billion and cut $917 billion in spending, while allow the president to seek another $1.6 trillion in borrowing based on the law that should be approved by Christmas to cut the deficit by $1.8 trillion.

The downgrade pressure is still seen, where yesterday S&P followed Moody's in lowering Greece's credit rating to CC from CCC with negative outlook, which is only two steps above default, as the agency sees that the second bailout plan approved last week by European officials, which includes the involvement of private sector and Greek debt restructuring, would end up with losses to "commercial creditors" which made the euro fell against majors, especially low-yielding currencies.

While today Moody’s put the Spanish government bond rating on review for possible downgrade, citing that the Spanish downgrade might be limited to one step from their current Aa2 rating as the agency said funding pressure and also the precedent package for Greece is further pressure on Spain.

Eyes today are on the vote from the United States and the GDP although investors lack the confidence after it was postponed twice. A deal to avert an unprecedented debt default by the world's largest economy is nowhere in sight as the Republicans and Democrats continue to push for their own proposals and the deadlock presists.